Adjusting to Changes in Liquidity and Volatility

Often times it can feel like liquidity has left the futures and treasury markets. Other times they feel more volatile than ever. The reality is that markets change.

I repeat this constantly in my material. I emphasize it during webinars. I probably say it too much. But like most truths in trading, it doesn’t really sink in until you see it happen yourself.

Why Conditions Have Changed

What we’re experiencing is the result of a shift in underlying forces:

• changing global economic conditions
• ongoing trade disputes
• Brexit uncertainty
• political risk
• upcoming elections
• funds rotating capital from risk assets into cash

When most participants are aligned and the future feels predictable, markets tend to trend or move sideways in an orderly fashion. When the future becomes unclear and opinions diverge, behavior changes.

And when fund managers become more concerned with protecting capital than growing it, exposure is reduced. Less exposure means less activity from large players—which means lighter liquidity and thinner markets.

What This Looks Like in Practice

Over the past few years, Treasury markets were consistently thick. During slow periods, it wasn’t unusual to see 30,000 contracts trade between two prices in the 10-year with virtually no directional movement.

That’s no longer the case.

Now, during active periods, we’re seeing:

• the 10-year move 5+ ticks on just a few thousand contracts
• bonds move 7+ ticks on a few hundred contracts
• a dramatically expanded daily range

Liquidity has declined. Volatility has increased. This is normal market behavior—it’s a cycle, not a seasonal quirk.

I saw something similar when I first started trading Treasuries. Not identical, but close. It isn’t new to me—but it’s very new to many traders experiencing it for the first time.

Why Old Tactics Feel Broken

Let’s say you’ve been trading in a low-volatility environment:

• risking one or two ticks
• trying to make three or four
• seeing 50,000 contracts trade across a few prices
• finding only one or two quality trades per day—or none

That approach works when markets are slow and thick.

Now fast-forward to today.

You’re seeing:

• 8-tick moves on 10,000 contracts
• sharp snaps and reversals
• 20-tick runs in Treasuries
• similar behavior in ES, gold, and other markets

Same trader. Same concepts. Completely different environment.

The Same, But Different

Here’s the key point:

The methodology doesn’t change—but the averages do.

You’re still:

• identifying momentum zones
• anticipating stop locations
• watching for domino effects
• using volume to gauge continuation or exhaustion
• assessing the macro picture
• distinguishing good action from bad action

What does change is execution.

In lighter liquidity and higher volatility, the “perfect price” often doesn’t exist. Instead of a precise level, the optimal entry may be a three- or four-price area.

That means:

• slightly wider risk
• less confirmation
• faster decision-making

The trade-off? When you’re right, you get paid more.

Adjust Size, Not Expectations

This environment calls for smaller size.

If you’ve been trading:

• 10 lots → consider 5
• 5 lots → consider 3

Trying to risk one tick on a 20-lot while scalping two ticks simply doesn’t work in this environment. The math and the liquidity don’t support it.

That’s not the trade right now.

The Most Important Advice: Don’t Fight It

Don’t panic. And don’t assume things will “go back to normal” anytime soon—because they may not. Liquidity could return in three months. Or conditions could stay like this for two years. There’s no way to know.

What is certain is that this kind of shift is completely normal in trading.

Getting frustrated, freezing up, or declaring the market “untradeable” doesn’t help. You don’t fight the change—you adapt to it.

That doesn’t mean forcing trades. It also doesn’t mean viewing this as a negative. Watch. Wait. Learn. Adjust. The ability to catch larger moves more frequently is actually a positive, if approached correctly.

Final Thought

While extreme, erratic movement isn’t ideal for consistency, some volatility is required to make money.

Markets have to move. They’re moving now.

Do your best to adapt—and take advantage of what the market is offering instead of wishing it would behave like it did six months ago.

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